RU Ready Incorporated began operations at the beginning of J

RU Ready Incorporated began operations at the beginning of January 2011. The company maintains its inventory balances using the perpetual method, using FIFO.

A. Journalize each of the January transactions in debit/credit form, if no entry is required, list “no entry” B. Post January entries in T accounts

C. Prepare a Trial Balance as of 1/31/11

D. Record any necessary adjusting entries

E. Prepare an Adjusted Trial Balance as of 1/31/11

F. Prepare a Balance Sheet, Statement of Retained Earnings, and Income Statement.

January Transactions

1) Owners invest $105,000 at the beginning of January. 15,000 shares of $3 par Common Stock are issued.

2) A $50,000 bank loan at 9% annual interest is obtained on January 1.

3) 200 units of inventory are purchased for $15,000 on account.

4) Supplies are purchased for internal use for $900 cash.

5) Insurance is paid for a three month coverage period Jan-March for $1,500.

6) Rent of $2,000 is paid for a two month period beginning in January.

7) Office furniture is purchased on January 31 for $30,000 cash. The furniture will be depreciated straight-line over 5 years with depreciation charged monthly. Its expected salvage value is $6,000.

8) 150 units of inventory are sold for $200 each, ½ for cash and ½ on account.

9) A customer places an order and pays $200 per unit in advance for 50 units of inventory to be delivered in February.

10) An additional 200 units of inventory are purchased for $16,000 cash.

11) A van is purchased on January 1 for $22,000 cash and is expected to be used for 3 years. RU Ready Inc. will use straight-line depreciation for this asset. Its salvage value is expected to be $4,000.

Solution

Answer a. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Cash    105,000.00 Common Stock    45,000.00 15,000 shares X $3 Paid-in Capital in Excess of Par    60,000.00 15,000 shares X $4 (record the issue of Common Stock) 2 Cash      50,000.00 Notes Payable    50,000.00 (Record the bank loan taken) 3 Inventory      15,000.00 Accounts Payable    15,000.00 (Record the inventory-200 units purchased) 4 Supplies            900.00 Cash          900.00 (record the supplies purchased) 5 Prepaid Insurance        1,500.00 Cash      1,500.00 (record the insurance paid for 3 months) 6 Prepaid Rent        2,000.00 Cash      2,000.00 (Record the rent paid for 2 months) 7 Office Furniture      30,000.00 Cash    30,000.00 (record the office furniture purchased) 8-A Cash      15,000.00 75 Units X $200 Accounts Receiavable      15,000.00 75 Units X $200 Sales Revenue    30,000.00 (record the sale of 150 units) 8-B Cost of Goods Sold      11,250.00 150 Units X $75 Inventory    11,250.00 (record the cost of goods sold of 150 units) 9 Cash      10,000.00 50 Units X $200 Advance from Customers    10,000.00 (record the advance recd from customers) 10 Cash      16,000.00 Inventory    16,000.00 (record the inventory purchased - 200 Units) 11 Van      22,000.00 Cash    22,000.00 (record the purchase of Van) Answer b. Cash Accounts Receivable Supplies 1    105,000.00            900.00 4 8-A      15,000.00 4          900.00 2      50,000.00        1,500.00 5 8-A      15,000.00        2,000.00 6 9      10,000.00      30,000.00 7      16,000.00 10      22,000.00 11 End. Bal.    107,600.00 End. Bal.      15,000.00 End. Bal.          900.00 Inventory Common Stock Paid-in Capital in Excess of Par 3      15,000.00      11,250.00 8-B    45,000.00 1      60,000.00 1 10      16,000.00 End. Bal.      19,750.00 End. Bal.    45,000.00 End. Bal.      60,000.00 Notes Payable Accounts Payable Prepaid insurance      50,000.00 2    15,000.00 3 5      1,500.00 End. Bal.      50,000.00 End. Bal.    15,000.00 End. Bal.      1,500.00 Prepaid Rent Office Furniture Sales Revenue 6        2,000.00 7      30,000.00      30,000.00 8-A End. Bal.        2,000.00 End. Bal.      30,000.00 End. Bal.      30,000.00 Cost of Goods Sold Advance from Customers Van 8-B      11,250.00    10,000.00 9 11    22,000.00 End. Bal.      11,250.00 End. Bal.    10,000.00 End. Bal.    22,000.00 Answer c. RU Ready Trial Balance As of Jan 31, 2011 Accounts Title Debits Credits Cash    107,600.00 Accounts Receivable      15,000.00 Supplies            900.00 Inventory      19,750.00 Prepaid insurance        1,500.00 Prepaid Rent        2,000.00 Office Furniture      30,000.00 Van      22,000.00 Accounts Payable      15,000.00 Advance from Customers      10,000.00 Notes Payable      50,000.00 Common Stock      45,000.00 Paid-in Capital in Excess of Par      60,000.00 Sales Revenue      30,000.00 Cost of Goods Sold      11,250.00 Total    210,000.00    210,000.00 Answer d. Adjusting Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Interest Expense            375.00 $50,000 X 9% X 1/12 Interest Payable          375.00 $50,000 X 9% X 1/12 (record the interest expense) 2 Insurance Expense            500.00 $1,500 /3 Prepaid Insurance          500.00 (record the insurance expense for Jan) 3 Rent Expenses        1,000.00 $2,000 / 2 Prepaid Rent      1,000.00 $2,000 / 2 (record the rent expense for Jan) 4 Depreciation Expenses            500.00 ($22,000 -$4,000)/ 3 X (1/12) Accumulated Depreciation - Van          500.00 (record the depreciation expense for Jan) Answer e RU Ready Adjusted Trial Balance As of Jan 31, 2011 Accounts Title Debits Credits Cash    107,600.00 Accounts Receivable      15,000.00 Supplies            900.00 Inventory      19,750.00 Prepaid insurance        1,000.00 Prepaid Rent        1,000.00 Office Furniture      30,000.00 Van      22,000.00 Accumulated Depreciation - Van            500.00 Accounts Payable      15,000.00 Advance from Customers      10,000.00 Interest Payable            375.00 Notes Payable      50,000.00 Common Stock      45,000.00 Paid-in Capital in Excess of Par      60,000.00 Sales Revenue      30,000.00 Cost of Goods Sold      11,250.00 Interest Expense            375.00 Insurance Expense            500.00 Rent Expenses        1,000.00 Depreciation Expenses            500.00 Total    210,875.00    210,875.00 Answer F. RU Ready Income Statement For the Month Ended Jan 31, 2011 Sales Revenue      30,000.00 Cost of Goods Sold      11,250.00 Gross Profit      18,750.00 Opearting Expenses Insurance Expense            500.00 Rent Expenses        1,000.00 Depreciation Expenses            500.00 Total Operating Expenses        2,000.00 Net Operating Income      16,750.00 Other Income & Expenses Interest Exp.            375.00 Total Other Income & Expenses            375.00 Net Income      16,375.00 RU Ready Statement of Retained Earnings For the Month Ended Jan 31, 2011 Retained Earnings - Beginning Balance                     -   Net Income      16,375.00 Retained Earnings - Jan 31, 2011      16,375.00 RU Ready Balance Sheet As on Jan 31, 2011 Assets Current Assets Cash    107,600.00 Accounts Receivable      15,000.00 Supplies            900.00 Inventory      19,750.00 Prepaid insurance        1,000.00 Prepaid Rent        1,000.00 Total Current Assets    145,250.00 Property, Plant & Equipment Office Furniture      30,000.00 Van      22,000.00 Accumulated Depreciation - Van            500.00      21,500.00 Total Property, Plant & Equipment      51,500.00 Total Assets    196,750.00 Liabilities & Stockholders\' Equity Liabilities Current Liabilities Accounts Payable      15,000.00 Advance from Customers      10,000.00 Interest Payable            375.00 Total Current Liabilities      25,375.00 Long-Term Liabilities Notes Payable      50,000.00 Total Liabilities      75,375.00 Stockholders\' Equity Common Stock      45,000.00 Paid-in Capital in Excess of Par      60,000.00 Paid-in Capital    105,000.00 Retained Earnings      16,375.00 Total Stockholders\' Equity    121,375.00 Total Liabilities & Stockholders\' Equity    196,750.00